How Starling Bank’s Covid Loan Gamble Backfired: A £28m Wake-Up Call

What started as an ambitious bid to revolutionize business lending during the pandemic has ended in a costly lesson for Starling Bank, which now faces a £28 million bill for Covid loans that should never have been approved. The digital lender’s willingness to absorb these losses rather than seek government compensation represents both an admission of guilt and an attempt to salvage its reputation in an increasingly competitive market.
The saga began when Starling positioned itself as a champion of small businesses during the Covid crisis, promising faster, more accessible lending than traditional banks could offer. This strategy proved wildly successful in terms of customer acquisition, with the bank’s business client base growing by 243,000 customers in just 16 months – a rate of expansion that would have been impossible without the government’s guarantee scheme.
But success came at a price that is only now being fully realized. CEO Raman Bhatia’s acknowledgment that the bank failed to meet proper procedures for a significant portion of loans has exposed the dark side of digital banking’s disruption narrative. With profits down 25% and regulatory scrutiny intensifying, Starling must now prove that it can maintain its innovative edge while meeting the rigorous standards expected of a licensed bank.